Fair Pay Fair Play Book Summary - Fair Pay Fair Play Book explained in key points

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Fair Pay Fair Play summary

Name: Fair Pay Fair Play
Rating: 3.8 (13 reviews)
Author: Robin A. Ferracone

Robin A. Ferracone

Aligning Executive Performance and Pay

3.8 (13 ratings)

11 mins

Brief summary

'Fair Pay Fair Play' by Robin A. Ferracone exposes the gender wage gap and proposes solutions for fair pay in the workplace, benefitting companies and employees alike.

Topics

Leadership Entrepreneurship

Table of Contents

Fair Pay Fair Play
Summary of 5 key ideas

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Key idea 1 of 5

What’s in it for me? Discover how to find an equilibrium for executive pay.

Are you familiar with the notion of aligned pay? If not, here’s a chance to get acquainted with an important element in business compensation.

Aligned pay has to do with the amount of compensation a company pays its executives. And crucially, that amount, whether stocks, bonuses or otherwise, needs to be fair.

But what is fair? These blinks will help you better understand what you should do when setting executive compensation and show you how you can bring your company’s pay scales back to earth.

In these blinks, you’ll learn

when a generous compensation package does more harm than good;
which factors you should consider when setting executive compensation; and
why, for successful executives, cash is just one element of a great position.

Executive compensation plans should take into account CEO performance and industry standards.

Imagine you’re an account manager on a team of three employees. Even though you all work equally diligently, you find out that your two colleagues are paid a higher salary than you.

Such a situation would be unfair, right?

Unfair pretty much explains the state of executive compensation today. Executives are routinely overcompensated, and compensation plans seldom take into account CEO performance.

Consider that John Chambers, the CEO of Cisco Systems – one of the world’s biggest telecom companies – each year “earned,” in addition to his $300,000 salary, from $5 million to $6 million worth of stock options and a $400,000 bonus.

That’s way too much money – no executive can perform that well! But performance isn’t all a compensation plan should consider to be fair. It also should reflect what other CEOs earn in the same market.

Industry standards vary, and each industry is subject to different external forces. For instance, the energy sector is sensitive to oil prices, while the tech industry reacts to inventory levels in the IT supply chain.

Such external factors are important, as they can affect the overall performance of any executive. That’s why it’s important for CEO pay to reflect the compensation of peers in the same industry.

This way, if an oil crisis drives prices through the roof, the CEO of an energy firm won’t be blamed for the company’s poor returns. Even if the CEO’s performance was above reproach, it wouldn’t make sense to base the executive’s compensation on that of technology CEOs working in a booming market.

To compensate fairly, stick with pre-arranged agreements and focus on overall business strategy.

We all make decisions on a whim. As a result, we set goals that we can’t keep, and thus abandon those goals without thought. This sort of behavior works to distort executive compensation schemes.

Decisions made randomly and outside original plans undermine fair pay strategies. Here’s why.

Executive compensation plans often protect CEOs from mistakes or short-term risks.

Have you ever heard the term illusory superiority? This is a psychological phenomenon in which an individual believes that his successes are a result of his hard work but his failures the fault of external forces.

The same tendency can apply to companies. Corporations often believe that management is cleverer, more capable and generally “better” than employees at lower levels. This belief translates into executives earning far more than they really should.

Companies often overcompensate executives to keep them on board, yet cash is a poor motivator.

We often think that there’s no problem money can’t solve, especially when it comes to compensation. If you pay someone a sufficient amount of cash, that person will strive to perform well, period.

As a result, executive committees tend to overpay executives just to keep them in the top office, even if it means creating economic chaos within the company.

A couple of tools can help you calibrate executive compensation to make sure it’s fair.

We now know that executive pay is plagued by fairness problems. But what can be done?

Just like a street map tells you whether to turn right or left, an alignment report can help guide your decisions regarding executive compensation. This report helps you determine whether a particular level of compensation is “aligned” with an executive’s overall value.

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What is Fair Pay Fair Play about?

Fair Pay Fair Play (2010) sets out the basic principles of fair executive compensation. These blinks explain what goes into making compensation reasonable, why executives are often paid disproportionately higher salaries than other employees and which concrete strategies you can employ to set a fair pay scale for your company.

Who should read Fair Pay Fair Play?

Human relations (HR) professionals
Entrepreneurs and CEOs
Anyone interested in the rules of executive compensation

About the Author

Robin A. Ferracone has over 30 years of experience as an executive compensation consultant.

Categories with Fair Pay Fair Play

Management & Leadership Entrepreneurship

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